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Owe Taxes: Your Passport is at Risk

| Feb 10, 2016 | Firm News

The U.S. Department of State is responsible for granting and renewing passports. In late 2015, President Obama signed into law a provision that will allow the State Department to decline issuance of a passport and revoke already issued passports when a federal tax debt is owed of $50,000 or more. New Internal Revenue Code section 7345 requires the IRS to certify to the State Department “seriously delinquent tax debt.” The IRS is generally prohibited from sharing information about taxpayers, even with other federal agencies, but the new law creates an exception allowing the IRS to share a taxpayer’s “seriously delinquent tax debt” information with the State Department.

A seriously delinquent tax debt is: 1. a tax debt that exceeds $50,000; 2. For which a notice of tax lien is issued; 3. the administrative rights with respect to the lien notice have been exhausted or lapsed; 4. a levy is made pursuant to Internal Revenue Code section 6331. Tax debts that are being paid through an installment agreement, offer in compromise, or an application for innocent spouse relief is pending are exempt. Cases identified as uncollectible, however, do not appear to be exempt.

Interest and penalties are included for the purpose of determining if the tax debt is over the $50,000 threshold.

Once a taxpayer is certified as having a seriously delinquent tax debt, the certification remains in place until the IRS notifies the State Department there is no longer a seriously delinquent tax debt. While the law states the timeframes within which the IRS is to update the State Department, taxpayers looking to travel should not expect this update to occur quickly, particularly in the early stages of these two government agencies implementing this new law.

A taxpayer can challenge an erroneous certification by filing a petition in the U.S. Tax Court or filing suit in U.S. district court.

There are some exceptions to allow a passport to be granted despite certification when a passport is needed for an emergency, or humanitarian purposes. Again, I would not rely on this exception. I can only imagine how long it will take for the State Department to make a determination that there is a valid exception.

The law is already in effect. As of now, you will need to make sure your taxes are paid if you are planning to travel on a passport. Americans abroad will need to pay particular attention to this issue since they routinely need their passport.